"We expect the liquidity squeeze to go on for at least a few more days resulting in slow appreciation of the local currency," stated the Standard Chartered Bank in its daily commentary.
The Central Bank monthly economic review for December shows that the country as a net importer introduced into the country goods and services worth 11,580.2 million US dollars (about 18,5bn/- which is 32.3 per cent increase compared to USD 8,752.7 million (about 14bn/-), recorded during the preceding year.
According to the Bank report, the value of oil imports increased by 49.7 per cent to 2,957.3 million US dollars (about 47bn/-) with the increase being driven by a rise in volume and prices for oil in the world market. The Bank statistics shows that the shilling traded last week in a band of 1,552 /- and 1,584/- against the greenback in three months consecutively, signifying a new equilibrium range.
Tax obligations and salary outflows by most investors are some of the reasons behind poor performances of the government securities in the previous weeks. However, in the long run, Shilling stability will increase money mongers appetite to shift attention to debt instruments namely treasury bills and bonds, as well as overnight borrowing and repurchase agreements.
Commercial banks are among the largest investors in government papers with over 60 per cent market share. Others are pension funds and insurance companies.
The BoT recently said that it was still maintaining monetary policy on foreign exchange and it remains a floating regime in order to pacify the economy.